Turner & Townsend’s latest UK Market Intelligence (UKMI) report shows significant upward revisions to its quarterly forecasts – particularly regarding inflation. This is driven by rapidly rising energy costs as the impact of the war in Ukraine resonates through global supply chains.
Just three months ago the firm was forecasting that real estate tender prices would rise 4.5% in 2022 and infrastructure at 4.0%. Now it is saying 8.5% for real estate and 6.0% for infrastructure.
The Ukraine conflict has had a significant near-term impact on inflation, it says, and comes on top of issues relating to the pandemic and Brexit disruption. Despite relatively little direct reliance on oil and gas imports from Russia, the nature of the global market means that elevated energy prices are at the heart of the latest spike, with monthly indices for crude oil, diesel and premium unleaded increasing by 99.4%, 33.8% and 30.5% month on year in March alone. This has impacted logistics costs as well as materials with energy-intensive manufacture processes such as brick, cement and steel.
Longer term, Turner & Townsend is forecasting tender price inflation in 2025 of 4.0% for real estate and 5.0% for infrastructure.
The Spring UKMI report recommends that businesses “keep cool heads” in the face of these pressures, calling for “pragmatic, flexible procurement and greater collaboration with the supply chain”. It underscores the importance of early engagement with suppliers, better understanding and apportioning risk and maximising value over hitting target costs.
With tender prices rising rapidly, Turner & Townsend warns that there is a risk of projects being cancelled due to cost escalation.
Martin Sudweeks, UK managing director of cost management at Turner & Townsend, said:
“Now is the time for calm, clear and programmatic thinking – focusing on setting up projects for success with full recognition of challenging cost pressures and a plan to manage them that starts with getting the basics right.
“Contract scrutiny needs to be front and centre. Businesses must avoid panicked procurement in the hope of locking-in pricing, instead taking time to eliminate ambiguity that can be a bigger risk than inflation itself.
“This is about picking the best team and ensuring you have capable and resilient contracting partners. Clients should map out the supply chain and identify weak links, then work to eliminate risk and where necessary share the burden of disruption. Those that successfully diversify their supply chains and build strong relationships with trusted suppliers will maximise resilience and benefit most long-term.”